Southwest Airlines has adopted a ‘poison pill’ strategy to deter Elliott Investment Management from increasing its stake in the carrier, following the activist investor’s call for leadership changes after disappointing financial results, according to Reuters.
The announcement comes days after Southwest CEO Bob Jordan stated he would not resign in response to pressure from Elliott, which revealed a stake worth nearly UIS$2 billion in the carrier last month.
“Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for lasting value creation,” Southwest Executive Chair Gary Kelly said in a statement.
Kelly mentioned that Southwest’s board adopted the poison pill as Elliott could “significantly increase” its current stake of 11%.
Under the poison pill strategy, used by corporate boards to thwart hostile take-over bids, Southwest will issue one right for each share of common stock. The rights will initially trade with the carrier’s common stock and will generally become exercisable if any person or group acquires 12.5% or more of the company’s shares. The right will allow holders to buy shares of common stock at a substantial discount.
Elliott’s push for replacing CEO Jordan with an outside hire came after the carrier delivered lacklustre results in recent quarters, partly because of delays in plane supply from Boeing. Late in June, the company also flagged ongoing struggles with pricing in its second quarter due to difficulties in accurately predicting travel demand, inviting criticism from Elliott.
Shares of the company were up less than 1% in early trade. The stock has lost nearly 22% of its value in the past 12 months.
